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Merger-modeling debut

Applies laboratory analysis to media-concentration issue 6/09/2002 08:00:00 PM Eastern

Harry Truman once asked for a one-armed economist after one too many forecasters hedged, "On the other hand … ." FCC Chairman Michael Powell soon may share his frustration.

Last week, the agency released the first of several studies aimed at complying with a string of court decisions requiring the FCC to rewrite media-ownership rules based on clear economic evidence. If that study of concentration in the cable business is any indication, the commission won't have an easy time getting unequivocal data from its research projects.

"This is a spinmeister's delight," said Media Access Project President Andrew Schwartzman. "All sides of the debate will draw different conclusions." He opposes most efforts to raise ownership limits.

Last week's report and others to follow were commissioned to help the FCC set new numerical limits on cable and broadcast ownership reach, or maybe even design a whole new approach to preventing media companies from getting so big that they can dictate program prices or carriage and consumer fees.

The 121-page report was made public, and the FCC is soliciting comments to help decide whether, or even how, to account for the findings in crafting new ownership limits.

The FCC's reexamination of its ownership rules was launched in March 2001 when the federal appeals court in Washington ordered the FCC to better justify or reset the 30% limit on one company's share of pay-TV national subscriber share. Since then, the court has ordered similar rejiggering of the 35% cap on broadcast national audience reach and limits on TV duopolies.

Future studies will focus on the extent to which audiences and advertisers substitute one communications medium for another and could be used to calculate the "true" level of concentration created by a merger.

Last week's study, which examined programming prices under various levels of concentration among cable systems, could be viewed as a blow to consolidation since it concluded that less popular programming networks have a rough time surviving in markets dominated by one or two multichannel distributors, especially when those distributors have limited capacity.

But supporters of loosening media-ownership limits counter that the study, which was based on laboratory role-playing by individuals acting as multichannel programming and distribution companies, involved far fewer players than there are in actual markets.

Although Schwartzman quibbled with some methodology, he was pleased the experiment found that the industry practice of granting large cable systems the right to insist that per-sub programming fees are not higher than other systems' "substantially increases" big systems' bargaining power, calling it "an overwhelmingly important conclusion."

Despite the study's limitations, Schwartzman praised the FCC for undertaking it. "In the past, the FCC has been excessively reliant on industry-derived data of very questionable verisimilitude."

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